Displaying items by tag: retirement

The SEC has introduced new disclosure requirements and registration processes for registered index-linked annuities (RILAs) and registered market value adjustment (MVA) annuities in hopes of bringing clarity to the industry. The final rule mandates issuers of non-variable annuities to use Form N-4, updating the framework for these products. 

This change aims to help investors make informed decisions, as the market for these products has grown significantly, with RILA sales reaching $47.4 billion in 2023. The amendments include a summary prospectus framework and extend Rule 156 to non-variable annuity advertisements to prevent misleading materials. 

While SEC Commissioner Hester Peirce supports the general approach, she expressed concerns about potential biases and the need for creative disclosure techniques to enhance investor understanding. The amendments will take effect 60 days after publication in the Federal Register, with full compliance required by May 1, 2026.

Finsum: Annuities seem bogged down by more complexity, and this ruling could help the industry in the long run. 

Alternative investing, which includes assets like private equity, real estate, and hedge funds, is becoming more accessible beyond just the ultra-wealthy and institutions. These investments can enhance portfolio diversification and potentially mitigate risk due to their low correlation with public markets. 

Utilizing self-directed IRAs for alternative investments offers the added benefit of tax-free growth. The popularity of alternative assets is rising, with private market assets growing significantly and individual investors currently holding a small percentage of these assets. 

Diversifying with alternatives can help manage market risk, especially during volatile times. New investment platforms are making it easier to access alternative investments, allowing for a more customized and balanced portfolio approach.

The DOL's new Retirement Security Rule mandates that advisors handling retirement savings follow a fiduciary standard, prioritizing clients' best interests. Effective September 23, 2024, with a 365-day transition period, this rule could help clients save up to $5 billion annually by ensuring unbiased advice. 

The rule addresses issues with rollovers and commissions, aiming to close previous regulatory loopholes. While some industry groups plan to challenge the rule in court, many investment advisors already operating under fiduciary standards support it.

The CFP Board applauds the rule, noting that 92% of Americans expect fiduciary-level retirement advice. This rule intensifies the debate between fee-only advisors and commission-based professionals regarding conflicts of interest.

Finsum: We don’t expect this rule to have a huge impact on advisors, but future regulation will drastically be impacted by November 2024. 

Traditionally, fixed income is where financial advisors look to reduce portfolio risk. This is no longer the case in the post-pandemic period, as the bond market has experienced major volatility, which is becoming the norm in a high-rate, high-inflation regime.

Given these conditions, investors may be better off with fixed index annuities (FIAs). Like bonds, FIAs produce income; however, a key difference is that FIAs guarantee an income stream for life as opposed to a fixed period. Another advantage of FIAs is that they have higher earnings potential than bonds, given that many are designed to earn interest based on the performance of an external index like the S&P 500. In contrast, fixed income has significantly underperformed over the last 5 years and failed to beat inflation.

Over long periods of time, costs matter when it comes to long-term investing. Most bond investments have fees that range between 0.5% and 2%. In contrast, FIAs tend to have much lower fees, on average. 

In terms of risk, FIA offers full protection of the principal investment. This means that it can be more effective than fixed income to hedge equities, especially in the current environment. Overall, FIAs can be more effective than fixed income, especially for investors who are in or nearing retirement. 

Finsum: Advisors should consider fixed indexed annuities (FIAs) as an alternative to fixed income, especially in the current environment. FIAs offer lower costs, more downside protection, and greater potential for appreciation.

A recent deep dive by Cerulli Associates explored how defined contribution (DC) managed account users and non-users perceive the value of DC managed account programs.

Managed account users appreciate the time, energy, and stress saved by delegating 401(k) and retirement planning to professionals. They also value the human advice component and the employer’s vetting of the solution.

Many non-users were shown to be swayed by the human advice component of managed accounts and affected the fee structure they were willing to accept. Adding to this a meager 16% of non-advice users feel very confident in their investment strategy, while nearly all DC managed account users express strong confidence.

As the retirement industry shifts away from defined benefit systems, individual plan participants must educate themselves and implement effective retirement investment strategies. 

Finsum: Retirement accounts seem ready-made for managed accounts and clients seem to desire them based on this research.